Universal Health Coverage Part III: Funding and HLEG recommendations

Cooperative action on UHC dissolves on the subject of funding. The objections are easy to comprehend. First, no one wants to accept the burden of another’s rights without the guarantee of responsible utilization (a contributor to spiralling costs) and second, confidence in government’s efficiency with public spending is, at best, reluctant. This is especially so in India where gross income inequality is prevalent, the middle class is already burdened by high taxation and governance is mindless of transparency and/or accountability. In most public funded schemes and corporations, inefficiency, wastage and pilfering are the norm. This institutionalized corruption makes it extraordinarily difficult to ensure the success of well planned and well intentioned schemes, most of which predictably fall by the wayside.

Healthcare costs are affected by a dual set of opposing constraints: affordability and direct payments. The affordability accorded by insurance will spur utilization of the service which then loops into more spending. Contrastingly, a system with a diverse and fragmented purchase model for the same service is hard to regulate, is open to price manipulation and compromises on practice standards. At least, utilization has the benefit of improved outcomes and can also be manipulated to some extent by behavioural modulators. On the other hand, direct, out of pocket, payment has a negative influence on outcomes. It brings lack of affordability (forcing avoidance of care or worse, denial of care), straight to the heart of health system failure.

Methods of financing:

Countries that have demonstrated successful financing of UHC share these features: 1) pooled public funds as the dominant source of financing and, 2) a universal and mandated health coverage. An optimal financing system incorporates pre-payment, pooled risk and cross-subsidization as critical elements. Commonly used methods of public financing include a combination of taxation, government revenue allocation, innovative financing and donor support. These are highlighted below in Table 1.

Financing methods

Comments

1.Taxation

Is the commonest method by which public health insurance is funded around the world. The best example is NHS in the UK.

Must be accompanied by increasing the efficiency of tax collection. Indonesia has demonstrated great success with tax reform

2.Reprioritising public expenditure

See text for detail

Countries that have demonstrated success with reallocation are Tanzania (now spend 18.4% on health) and Liberia (16%). Figs include donor funds.

Indonesia has been able to finance UHC for all its citizens by reducing its enormous $25 billion fuel subsidies by 1/3

3.Innovative financing

The Philippines has demonstrated success with financing UHC with sin and sumptuary taxes on tobacco.

WHO’s suggestions for India include:

Foreign exchange transactions: A .005% levy on the daily turnover of 34 billion USD will yield 370 million USD

Diaspora bonds

Solidarity levies (e.g: mobile phone calls)

Sin and sumptuary taxes

4.Donor funds

Need for countries to honour their commitment pledges to ODA (official donor assistance). In this regard, a recent paper on India’s high contribution to global aid in the face of its own neediness, makes for interesting reading: http://bit.ly/XRiIrZ

Table 1: Financing methods

Expanding on the need to re-prioritize government expenditure: Do we have the money? The first step in planning outlay is to assess the per capita costs. WHO recommends that for UHC to be operational by 2015; LDC’s must raise the per capita spend on health from 32 USD to 60 USD. The recommendation includes infrastructural investment cost. Current per capita public spending is Rs. 675. HLEG recommends raising it to Rs. 1975 by 2017. Both figures are well below the recommendation.

Current health spending:

A comparison of the percentage total public spending in India versus that in neighbouring countries that have recently adopted UHC as an agenda for progress, (Sri Lanka, China and Thailand) throws light on interesting facts. India leads all these countries, in total public spending, by more than 10%. Current figures stand at 34% for India while the other three are in the range of 22-24%. Yet, the allocation, from this, to health is 3-4% in India and 7-14% for these other countries. Health in India is pathetically underfunded and ranks amongst the lowest in the world (Table 2). The numbers confirm, in stark and simple terms, what is common knowledge. That, underfunding is not due to a lack of resources; it is that health has always remained a low priority sector with the government. Public money is routinely allocated to schemes that are considered more populist than health, irrespective of the success of those initiatives. Neighbouring countries, by comparison, appear to be more fiscally conservative. It is important to note that increasing the allocation to health from the pool, only needs a re-prioritisation of extant public spending; away from wasteful schemes and to health.

States contribute close to 65% of total health spending. The rest is supplanted by the Centre; but, central allocation is not proportionate to a state’s resources and is largely equal across the board. This further constrains the capability of poor states. With the exception of Gujarat, UP and Bihar; all other states recorded a reduction in health spending between 2001-2008.

Private spending comprises the bulk (2/3) of total spending on health. 86% of this is from direct payments (out of pocket). More than 70% of private spending is on out-patient care and drugs. Private insurance is still a nascent sector (1.1% in 2006), but, has recorded rapid growth in recent years. Coupled with a slew of public insurance schemes, more than 25 per cent of the population (2010 figures) have access to some form of health insurance (19% public and 6% private). Table 2 is a gross overview of health spending; the figures are from the HLEG report.

2009 figures

India

China

Total Health expenditure as % of GDP

4.5%

4.6%

Total Public Health expenditure as % of GDP

1.2%

2.3%

Total Private Health expenditure as % of GDP

3.3%

2.3%

Total public spending

33.6%

22-24%

% Total Spending on Health

% of total public spending on health

Only 9 countries (out of 191) spend less than GOI on health

4.1%

10.3%

% of total private spending on health

67%

Per capita spending

Total per capita public spending (in Rs.) on health

Center (1/3) : 220

State (2/3): 475

675

Total per capita private spending on health

1825

Private spending on Health:

% out of pocket payment

86%

% of total population covered by private insurance (‘10 data)

6%

Table 2: Health spending overview

HLEG recommendations:

Successful financing of a behemoth like UHC will require providing for adequate revenue resources and projected planning for increased utilization necessitating higher spending in coming years. The HLEG report suggests the way forward with a series of recommendations. These are summarized in Table 3. Note: Comments are with specific reference to these recommendations. An alternate model for UHC is discussed in a follow up article.

Recommendations

Expanded notes

Comments

Recommendation 1:
Increase public spending from 1.2% to 2.5% by 2017 and 3% by 2022
(Figs are as percentage of GDP)

2. Private (out of pocket) spending is currently 3 times higher than public spending. With the proposed increased allocation, this ratio will reverse even if the total health spending stays at current levels of 4.5%

3. For UHC to be a successful initiative it has to be both compulsory (to eliminate the sinkhole of adverse selection) and subsidized.

As seen in Table 2 total public spending is already high at 34%. UHC needs a committed reprioritization of resource allocation to health

The timeline needs to be advanced. For UHC to take root the planned outlay should be disbursed over the next three years

Recommendation 2:

Ensure availability of drugs by increasing spending on drug procurement

1. Increase public spending on generic drugs for government hospitals from 0.1% to 0.5%

2. Pooled public procurement system

UHC should cover all IP and OP drugs; government should strictly negotiate prices to package rates, provide free access to drugs and services and include a prescription plan reimbursable at any pharmacy.

Private pharmacies, for a fee, can own and operate their franchises within the public health system.

Recommendation 3:

Use general taxation as the principal source of revenue generation

1. Tax-GDP ratio in India is very low @ 15% . Lower than most other countries with per capita income less than 1000 USD

2. General taxation in order to include the unorganized sector

3. Improve tax productivity

4. Enhance revenue productivity of tax with other sources – DTC and GST and payroll tax

Mere taxation without improving the efficiency of collection is an anachronism. The system for improved and effective collection must be structured with full and free transparency and accountability.

Recommendation 4:

Do not levy sector specific financing

Reasons for the recommendation: it is not going to significantly alter financing and that earmarking from one sector might be offset by reductions in others

Disagree. The WHO dubs this, ‘Innovative Financing’.

1.Other countries have shown success with this model. Examples include: Annual charge on bank balance sheets in UK, VAT in Ghana, Mineral rental tax in Australia, taxes on petroleum products, and sin and sumptuary taxes on tobacco and alcohol in the Philippines

3. The World Bank and the WHO recommends an increase of tobacco tax to 65% of the retail tax. India’s tobacco tax is at 38%; far lower than most other countries.

4. WHO studies in 22 LDCs shows a 50% increase in tobacco excise tax would yield revenues close to 1.42 billion in sin and sumptuary taxes

5. Other financing avenues: telecom, tourism and carbon taxes

Recommendation 5:

To not levy user fees of any kind under UHC

User fees (out of pocket, point-of-care fees) are responsible for non-utilization of health services and add an extra burden of administrative costs with questionable revenue benefit

Agree

Recommendation 6:

Equalization of cash transfer by the Centre to low per capita income states in order that the entitlement is equitable

Low capita income states have poor health indicators that need high health expenditure but typically have low health spending

The resource allocation from the Centre is not meant to substitute but to supplant pre-determined health spending in the state budget as additional funding

Agree; but should be performance and outcome based. An initial three year kick-start period should be followed after, as outcome driven incentivization. These states must be subject to additional audit of central funds

Recommendation 7:

The Centre should adopt a flexible and differential financing system for states

Agree

Recommendation 8:

Earmark at least 70% for Primary Health Care

Focus on prevention of disease and promotion of good health. Focus on maternal and child health, infectious disease, malnutrition disorders, chronic illness and geriatric rehabilitation

The overall emphasis of universal coverage can be on Primary Health Care as is the case with Cuba; but that will also entail a complete revamp of practice methods at this level in both urban and rural areas. The other para-determinant of health at the level of primary care is access to water. In order that primary care is effective there must be a parallel investment in the provision of clean water and sanitary facilities. This infrastructure must be developed in parallel with, if not ahead of, health reform.

Recommendation 9:

Who purchases the service? Recommendation is for the Department of Health and Family Welfare to take on the responsibility and not allow insurance companies or independent agents to purchase on behalf of the government

Strongly agree.

Recommendation 10:

Continuation of the above. Purchase of services must be undertaken directly by the Centre and the State governments directly or through quasi-government autonomous bodies set up to work on their behalf

Strongly agree that government must be the direct purchaser of services

Recommendation 11:

All government sponsored insurance plans to be merged under UHC with public distribution of a ‘Health Insurance Entitlement Card’

Strongly agree. Although the card can surely a more interesting name!

Table 3: HLEG Recommendations for financing

The translation of a national health program like UHC into a working model with secure funding and monitored quality standards, is a gargantuan exercise. Although funding occupies the centre and corners of all discussion on the subject; the problems with health reform extend far wider than this. In countries like India the struggle is all the more compounded by the entrenched fault lines of a complex system that has had a haphazard evolution. There are dual functioning health systems (government and private), abysmal health infrastructure, poor to none regulation of quality or standards, ill equipped health infrastructure, enormous human resource needs, lagging medical education reform and most critically maybe – an appalling lack of access to the para-structure of water and sanitation.

Despite some truly good initiatives and investments; in the overall analysis, government has failed in delivery of services and the public system is in a shambles. This juncture, where reform is being considered seriously, is a good place to rethink the real potential for partnering with the private sector towards the achievement of the national aspiration that is UHC.